Academics call for ‘full rethink’ of EU energy policy

Four prominent European think tanks, with the implicit support of a large section of the European energy industry, have issued a call for a major overhaul of EU energy policy. ‘Are we smart enough in the way in which we implement our objectives?’ they ask. Their answer is: ‘clearly not’. They have ‘one vision and 22 recommendations’ to offer policymakers to make EU energy policy smarter. ‘Energy policy should be made Chef-Sache.’

Jacques de Jong
‘We will have to wait and see how ambitiously the new European Commission will develop the EU’s energy policy. You have to give them a little time. But if no firm steps are taken, I am afraid the European energy market will disintegrate. Then we will see major differences in how various regions within the EU will develop. This will further weaken the position of the EU internationally.’

Jacques de Jong, senior fellow at the prestigious Dutch energy think tank Clingendael Energy Programme (CIEP) and former head of the Dutch independent energy regulator DTe, has been involved in European energy policy for most of his career. He was one of the co-founders of the Council of European Energy Regulators (CEER) and played a key role in the Florence and Madrid Fora, in which all stakeholders in the European energy sector regularly get together to hammer out differences and decide on common goals. De Jong, who with Jean-Michel Glachant of the European University Institute and Manfred Hafner of the Fondazione Eni Enrico Mattei (FEEM), is one of the three authors of the new report ‘A Smart EU Energy Policy’, strongly believes that current EU energy policy ‘lacks integration and coordinaton’.

Unlike the former EU President Jacques Delors, who in a recent report argued that there is no common European energy policy (see Let's get together), De Jong and his fellow-authors do believe that ‘there is indeed a EU energy policy’, as their report puts it. It is the ‘three-tier approach’ that the European Council agreed on in the spring of 2007. This approach is based on three pillars, which are known for short as “Lisbon” (the idea of an internal, competitive market), “Kyoto” (the pursuit of a sustainable energy economy) and “Moscow” (which is short-hand for the pursuit of security of energy supply).
The main problem is, says De Jong, that the way in which these three policies are implemented is frequently at odds with each other. Hence the call for ‘integration and coordination’.

Concrete means

For example, “Kyoto” – in the form of the RES Directive (the Directive on Electricity Production from Renewable Energy Sources) – is frustrating “Lisbon”, says De Jong. RES-policy is implemented strictly along national lines. Or, in the words of the report, ‘national dreams prevail and are blindly subsidised’. As a result, the internal market is frustrated. De Jong: ‘You cannot have an integrated market when large, indeed growing parts of that market – namely the renewable energy sectors – are subsidised at a national level in many different ways.’

Conversely, “Lisbon” is at odds with “Kyoto”. As De Jong puts it:”‘Current competitive markets offer insufficient guarantees for long-term investments in large-scale alternative energy sources, such as nuclear power stations, offshore wind parks and CCS projects’.
Then again, “Kyoto” also hinders “Moscow”. De Jong: ‘By heavily subsidising certain forms of renewable energy, “Kyoto” is discouraging upstream investment in gas in Russia. Supply security is not balanced with demand security.’

Yet another example is the way in which “Lisbon” is at odds with “Moscow”. ‘The EU tried to sell the idea of a competitive market to Russia’, says De Jong. ‘But market opening was not in the Russian interest. Maximising producer rents in the value chain was’. The report notes that “Lisbon” (‘the competitive internal energy market’) to a large extent determines “Moscow” (‘the EU’s external security of supply policy’). The authors question the wisdom of this arrangement. ‘Are we really to believe that open and friendly international markets will deliver timely and sufficient upstream infrastructures to ship the gas we think we need? And what about liquefied natural gas and terminals? And what about our internal needs for expanding infrastructure in gas and electricity, including the wider dimension of “ring” concepts and super-grids? And therefore, is there a need for a full rethink and an entirely redefined approach?’

The report adds that the EU’s external security of supply policy ‘has no infrastructure development plan and no energy long term contracting framework to make deals with foreigners. We are good at wording EU external policy, but lack concrete means and instruments.’

Single buyer

Jean-Michel Glachant
So what should be done, according to De Jong and his fellow energy experts? They offer many concrete recommendations for policy changes.
On the RES Directive, De Jong’s advice is ‘to create an integrated European “green market”.’ This could be done through the Emission Trading Scheme – if this scheme is made sufficiently robust and if it is implemented on an EU-wide basis, as the intention is after 2012. ‘You could consider minimum prices for CO2-emissions. This is what is being discussed now in the UK.’

On the security of supply question, De Jong says that the ‘model of the Caspian Development Corporation’ – in other words, a collective gas buying agency run by the European Commission – is ‘a possible option’. ‘I think a single buyer is a possibility, but this agency should not be allowed to sell gas in the EU market – it should auction off its contracts at the EU borders. In this way, you would achieve a balance between downstream competition and upstream monopoly arrangements.

De Jong thinks it would be advisable to take a single coordinating principle that would “inform” EU policy across the board. This could for example be a “2050 zero carbon policy”. It could also be some other coordinating principle, but whichever principle would be selected, it should be targeted at 2050, says De Jong. “The 20-20-20 targets [20% renewable energy, 20% CO2 emission reductions and 20% more energy efficiency in 2020, ed.] which have been adopted by the Commission are a good first step, but they are not robust enough. Investments in the energy sector tend to be much longer-term. Investors need to have a clear policy framework in place for many decades before they are willing to make risky investments, for example in low-carbon energy production.’

Highest level

De Jong and his fellow academics further issue a plea for European-wide regulation. The powers of ACER, the new Agency for the Cooperation of Energy Regulators, are not strong enough, says ex-regulator De Jong. ‘ACER should be given the task of promoting the development of a strong, reliable, EU-wide energy infrastructure, similar to the way it is done in the US.’ He adds that the current regulatory systems in many countries are aimed too exclusively at ensuring consumer protection and competition. ‘They should also be designed to stimulate investments in infrastructure.’

Perhaps the most important recommendation De Jong, Glachant and Hafner make is that ‘integrated energy policy making within the Commission’ should be made a ‘Chef-Sache’, that is to say, ‘a responsibility for the highest level, a single European Parliament committee responsibility and a single track in Council decision making’.

De Jong notes that the Commission will produce an energy infrastructure plan at the end of this year. In addition, the Commission and Council of Ministers will update the 2007 energy Action Plan early in 2011. ‘By that time we will find out what the situation is – and what we can expect of European energy policy.’

 

A Smart EU Energy Policy’

The report “A Smart EU Energy Policy” can be found here

Jacques de Jong joined the Clingendael International Energy Programme (CIEP) in 2003 after a long career in governmental energy policymaking. In 1998, he became the first director of the Office for Energy Regulation (DTe) in the Netherlands. He was also a co-founder of the Council of European Energy Regulators (CEER) and played an active role in the so-called Florence and Madrid Fora.

Jean-Michel Glachant has directed the Loyola de Palacio Energy Policy Programme and Florence School of Regulation since the autumn of 2008. He has been advisor to the European Commission and the French Energy Regulatory Commission (CRE), among many other posts.

Manfred Hafner coordinates European Energy Policy and Energy Security of Supply activities inside FEEM (the Fondazione Eni Enrico Mattei). He also teaches energy economics, markets and policy at the Ecole des Mines de Paris, the Institut Français du Pétrole and HEC-Paris.